tv Nightly Business Report PBS September 11, 2012 1:00am-1:30am PDT
>> this is n.b.r. >> tom: good evening. i'm tom hudson. susie is off tonight. from wall street to washington to emerging nations around the globe, the markets are waiting for the federal reserve to act this week. congress is back in session, but not much action expected there between now and the end of the year. and they're on strike in chicago, teachers there are walking the picket line for the first time in 25 years. that and more tonight on "n.b.r."! we begin tonight with a count- down. not to the fiscal cliff, or election day. of more immediate focus for investors, the federal reserve decision about more help for the economy, coming in three days. the u.s. central bank holds a two-day policy meeting this week, ending thursday afternoon, perhaps by announcing more stimulus. stock investors today were tentative ahead of the meeting. the dow slipped 52 points. the nasdaq lost about 32 and the
s&p 500 dipped nearly nine. we start with suzanne pratt looking at what options remain for the fed, and how investors might react to them. >> reporter: as has been the case frequently this year, all eyes here on wall street, have been looking south about 200 miles, to washington. what traders have been watching is what happens here at the federal reserve. and, this week is no different, more watching and waiting for more stimulus. it is widely anticipated fed policymakers will decide once again to step in and try help the economy. >> we're expecting another round of quantitative easing, q.e.3., they'll probably buy mainly u.s. treasury securities. at the same time, they'll probably extend the language on when they expect to be hiking rates from 2014 to 2015. but, even if the market gets more assistance from the fed on thursday, traders say don't expect a big rally in stocks. >> it is probably factored into
the market. but a lot will depend on what form another easing will take. in other words what will be the methodology, how it will impact the bond market. >> reporter: there is of course also the chance policymakers will postpone any more monetary easing until later this year. that's when the threat of economic damage from the so- called fiscal cliff is more imminent. such a delay would no doubt disappoint wall street, and might result in some knee jerk selling. still, no matter what the decision, market observers concede the fed chairman has boxed himself in to a corner. >> now he's left with the option of disappointing the market or ratifying market expectations. sometimes the market doesn't always know best and ben bernanke should be trying to wean the market from the fed rather than continuing to feed the beast. >> reporter: whether q.e.3. is actually going to do much to stimulate the economy is another
matter. the bottom line, financial markets want more help from the fed and they're probably going to get it. suzanne pratt, "nightly business report," new york. >> tom: any action the federal reserve takes this week comes against the back-drop a slowing global economy. just today, china reported a 2.6% drop in imports, as chinese demand for foreign made goods and services dropped. and exports out of china rose just 2.7%. a year ago, chinese exports were growing by almost 25%. in japan, the economy there grew at only half the rate seen earlier this year. between april and june, the japanese economy expanded just 0.7%. joseph tanious is global market strategist at j.p. morgan funds. joe, how does any federal reserve action this week impact global stock investors? >> well, i think if you think about equity markets in general and ris ago sets,
they tend to do well when you hear of more easing from central banks around the world. as a matter of fact, you think about what we have seen over the past few weeks, the economic data has no doubt been disappointing. however you have had sort of coordinated central bank easing, not only from the fed here in the u.s. but also the central bank in europe, you know, which has really helped propel stocks a little higher if you are asking me what it will do for its u.s. economy, i question how it will really impact economic growth when interest rates are at incredibly low levels. >> tom: maybe the economic impact and its risk asset impact. and when you talk about stock a lot of folks think we merging markets what emerging market specifically can actually benefit by actions in the u.s.? >> well, i think from action here in the u.s. generally speaking, when the fedex panneds their balance sheets and they try to become accomodative t has a tendency to lower interest rates in the u.s. and that encourages lending which may actually mean investors may borrow money in the u.s. and start investing abroad in
areas with higher interest rates. i think it might have a marginal positive effect. to be honest as we look at economic growth in parts of the emerging world and asia, for example, i think it's really going to be further accommodation from central banks in asia such as in china that is going to lead to stronger economic growth there and ultimately better equity returns in parts of emerge market. >> what camp are you in in china, recession, soft landing or perhaps a hard uptake if it really eases quickly? >> now i'm in the view that you are probably going to see a soft landing in china. a lot of the economic data we've seen has been disappointing and i don't think we want to sugar coat that, but i have been saying it is showing signs of moderation rather than collapse. you also have to keep in mind that china has the ability to ease policy both from a monetary standpoint and lowering interest rates as well as fiscal policy, and just sort of having a big band stimulus package. i'm not necessarily calling for that to come in like we saw in 2008 and 23009 because we are still suffering from an overhang that came from that. however i do think a soft
landing can be engineered and you're likely to see growth in china stabilize at some point this year, probably pick up towards the earlier part of next year. >> let's be honest, fiscal policy can be easier when you have one party if the government. skeptics meantime say the stock rally here in the u.s. certainly are based on an unsustainable environment, an environment of continuous low-interest rates. but the gains are real though, aren't they? >> the gains are real. and i think at the end of the day it's important that investors take a step back and realize what it is that they are buying when they are buying into the equity markets. you're buying a future share, your stream of easternings. when you take a look at profitability in the u.s., companies look very good. they prove to be very resilient and in the second quarter the s&p 500 posted an all-time record high in corporate profitability so net-net i do think there are some opportunities and there are clearly some reasons to be anxious and nervous this is why we continue to stress to our investors you need to have a balanced approach. >> joe tanious with us balancing the global risk and rewards with jpmorgan
fund. >> tom: school is out for 350,000 chicago school kids. the city's public school teachers walked off their jobs today in the city's first strike in a quarter of a century. as diane eastabrook reports the strike is testing reforms endorsed by the obama administration. >> reporter: chicago public school teachers pounded the pavement all day before the city's board of education headquarters. most wouldn't talk about their contract dispute with the city, but one supportive spouse did. >> they deserve whatever they need to teach our children. it's just pretty sad that it has to get to this extent.
>> reporter: while wages and benefits are an issue with the nearly 30,000 educators-- an even bigger one concerns how mayor rahm emmanuel wants to evaluate them. the mayor is backing an obama administration policy that evaluates instructors based on student test scores. the teachers argue the broader community and families also influence learning. labor expert robert bruno says the teachers see current plan as an attack on public education. >> so from their perspective they're not just bargaining some narrow bread and butter issues, but they're looking at the collective bargaining process as a way to truly transform in a dramatic way what public education can and should be. >> reporter: mayor emmanuel also wants to add roughly 50 more charter schools to the nearly 100 the city already has. those schools get public funding, but typically don't employ union teachers and don't follow the same regulations as public schools. the striking teachers call them a drain on their schools.
>> we believe that public money should be spent on the children's education and that charter schools should not be for profit. >> reporter: bruno says the timing of the strike and its outcome could prove uncomfortable for president obama this close to the november election. >> it does not serve his political objectives to have the third largest teachers union on strike. it can't be what he wants. >> reporter: this strike comes at a time when illinois is at odds with its public employees union over pensions. bruno says if the teachers prevail that could embolden those employees and public employees in other states. diane eastabrook, "n.b.r.," chicago. >> tom: still ahead, it's fashion week in new york city; from suits to ties to casual wear, we look at one group that's dressing up retailer profits: men. >> tom: after five weeks at home and on the campaign trail, congress was back to work today on capitol hill.
members of the house and senate are back for a short september session, and they have a long to-do list. but with elections looming, some big decisions will almost certainly be postponed. sylvia hall reports. >> reporter: a lot has to happen inside these walls between now and january. first up, congress has until the end of this month to avoid a government shutdown. to do it, they'll probably pass a continuing resolution known as a c.r. c.r.'s have caused major battles between the parties in the past, but this one will likely pass soon. lawmakers could also pass a bill to normalize trade with russia. but beyond that, nobody expects congress to accomplish much during this month's session. that leaves big issues, like the spending cuts and tax increases known as the fiscal cliff, on the table until after the november election. >> whoever has more power next year is going to have more power in brokering an end of the year deal. but no one benefits from the us going over the fiscal cliff, no one thinks they will. so i think a bill will come together in the lame duck period
in a relatively straightforward way. >> reporter: there's also a chance congress could extend the farm bill, which expires this month. that would extend aid to farmers affected by this summer's drought. but that aid could also end up as part of the c.r., and not in a stand-alone farm bill. sylvia hall, "n.b.r.," washington. >> tom: an update tonight on the race to the white house and the money behind it. president obama raised more money than republican rival governor romney did in august. he brought in $114 million last month, or about $2.5 million more than the republican candidate. august marks the first time in three months the president raised more money from his supporters than governor romney.
ford will add 1,200 jobs next year at its flat rock assembly plant. that plant in suburban detroit, where ford and mazda used to build cars together, will add a second shift next summer, to build the ford fusion. >> they're hourly positions and they run the gamut from working in our body shop, to working in our paint shop, to working in what's known as our final assembly area. and these are all very good paying jobs that will help i think not only the local communities, because in addition to the 1,200 hourly positions in the plant itself, there's a trickle down or a multiplier effect of jobs that are created in communities. >> tom: ford expects its newly re-modeled fusion to be a top seller, already, hitting record sales in august. the michigan plant will be in addition to fusions built in mexico.
and there are more pink slips at hewlett-packard. h.p. today said it will lay off an additional 2,000 employees. that's on top of the 27,000 job cuts it detailed in may as part of a $3.7 dollar, multi-year of a $3.7 billion, multi-year restructuring plan. h.p. is world's number one maker of personal computers. it employs more than 300,000 people worldwide. >> tom: the major stock indices began the week in the red, slipping from their post- recession highs last week. the s&p 500 didn't find much of a direction until early afternoon. prices dropped into the closing bell, falling 0.6%. an hour before the close, we learned consumer credit dropped in july for the first time in almost a year. according to the federal reserve, credit fell 1.5%, to $2.7 trillion. a drop in credit card debt was behind most of the decrease. other i.o.u.'s like student and car loans were up.
trading volume totaled 613 million shares on the big board. just under 1.6 billion on the nasdaq. the technology sector saw the biggest drop falling 1.3%. financials were down 0.9%. the industrial sector fell 0.7%. behind the tech sector weakness, apple. when it experiences selling pressure like it did today, it's noticeable on the nasdaq and s&p 500. shares fell 2.6%, while they are coming off an all-time high hit on friday, the selling comes ahead of this week's expected introduction of the iphone 5. semiconductor maker intel continues the sell-off that began on friday when it cut its financial outlook. shares fell another 3.8% today on heavy volume. this is its lowest price since mid-december. b.p. is raising more money to help pay for the costs of its deep-water oil spill in the gulf of mexico two years ago. it has a deal to sell several of its offshore oil fields in the gulf to a company previously
focused on natural gas. b.p. gets almost $5.6 billion for the deep-water fields. b.p. shares barely budged, rising just 0.3%. this deal is part of $38 billion in asset sales the company has planned to raise money to pay for the gulf oil spill clean-up and damages. the buyer is plains exploration and production, a company that had been concentrating on natural gas. and this is a huge deal for it. the $5.55 billion price tag is bigger than the market capitalization of plains exploration, and its paid for mostly with borrowed money. the deal will double the company's payroll. current shareholders paid heavily for the acquisition. shares dropped 10.5%. four years after taxpayers rescued a.i.g., the government will soon be a minority shareholder. the treasury department will sell $18 billion worth of a.i.g.
stock, reducing its stake to about 20%. so much stock coming to market weighed on the price today, down 2%. last week the company announced a $5 billion buyback, as it turns out, less than a third of what the government will be selling. we've expanded our e.t.f. marketflash to include exchange traded notes to more accurately report the five most active traded exchange traded products. four of the five most actives were down. the s&p 500 volatility index exchange traded note was up 5.5%. this tends to rally when the s&p 500 falls. and that's tonight's "market focus." you may think of amazon as the world's biggest store. but amazon is also the world's largest behavioral economics laboratory. the company carefully measures every aspect of how consumers act how they respond to incentives. as darren gersh reports, amazon
is now testing whether its customers will pay $15 more to not see advertisements on the latest kindle tablets. >> reporter: how much would you pay to not be interrupted? in the digital world, amazon is trying to find a precise answer to that question. >> traditionally where it's been hard to serve ads because they seem interruptive, by really drawing that line for consumers between paying with dollars and paying with eyeballs, amazon may be taking a big step towards paving the way for other media outlets to be able to charge to serve an ad-free environment. if enough people are willing to pay for ad-free, amazon might even take the next logical step. >> what amazon is amazing for is personalization. how about if you have to pay $200 to not get interrupted and i only have to pay $2 to not get interrupted? >> reporter: andreas weigend was amazon's chief scientist. now he advises companies on social data and consumer behavior. as technology gets better at
figuring out where people are and what they might be doing, weigend says companies like amazon might be able to time ads to when customers are most likely to welcome the interruption. and consumers might respond differently if those ads are truly customized. >> in this world of immensely rich social data, data people create and share, we can actually pay to see ads. >> reporter: and the pressure on ad agencies to be funnier and more creative will grow. >> if advertising is now the default monetization model for digital media, the ads better be pretty good if you are going to take people's time away. >> reporter: amazon seems to have gotten the message. the company says it expects a very small number of customers to opt out of advertising, because most like receiving special offers. darren gersh, "n.b.r.," washington.
>> as the federal reserve keeps interest rates at historic lows investors have been piling into dividend paying stocks. but some the dividends may come with plenty of danger. and that's tonight's word on the street. david pellet-- peltier is back with us portfolio manager of thestreet.com. you have been looking at yielding stocks for a long, long time for us. how do you define a dangerous dividend? >> thanks for having me back. the average stock on the s&p 500 yields about 2% but some of the stocks we'll look at tonight yield as much as 10%. so investors just need to know that for that extra compensation, there is extra risk you must understand beforehand. >> so that extra risk, when does that begin to border into dangerous area for
shareholders? >> sure, i like to see easternings at least two times as much as the annual dividend payout. >> you fall below that two times range you might see some risk of the dividend. also if there is debt on the balance sheet that say huge red flag. debt holders will get paid before the dividend will. >> it's important to know when are you in a dividend stock where you stand in the so-called capital structure of getting that corporate cash. >> pitney-bowes, the long time office equipment company, the share price has been trending well lower. there is that big yield, almost 11%. >> i used to own the stock when it yielded 3, 4%. this is a company that has raised its dividend every year for the paths 29 years but i don't think they are going 20 reach 30. with the stock down about 25% year-to-date are you seeing the market betting against this as well. >> tom: so how do you play this if you are a shareholder still enjoying that almost 11% dividend, when dow make that decision
to turn your back against that yield and sell the equity? >> here's the problem. the worst thing that could happen to the stock is for the dividend to get cut but already if you were buying the stock for 9%, 10% yield you have already lost money in this game. it is down 25% year-to-date. you have to realize that income is not guaranteed it. neither is the fact that the stock price will work in your favor. >> tom: good point because that income from the dividend can certainly help increase your take home but it also can certainly hurt you when the share price is going down faster than the income is, donnelly is another one with a dangerous dividend, yield of below 9%, again one that has had a tough time with share price trading from the midteens down here just below $12 tonight. >> both of these businesses, their core businesses are slowing. earnings are either flat or declining. both of these have 7 to 10 times more debt than cash on the balance sheet. these are all major red flags and again that 9%
yield means there is added risk. risk of the dividend being cut and risk of the stock working against you. >> you mentioned you used to own pbi, pitney-bowes, dow still own that one and what about rl donnelly. >> i'm restricted from owning both. >> we have dangerous dividend with david peltier with the word on the street. tomorrow on "n.b.r." two bellwethers of the u.s. economy say sales are slowing. is it something specific to fed- ex and intel, or early signs of a bigger slow down? then, politics and monetary, policy. if ben bernanke and his federal reserve colleagues add new help for the economy, how could it impact november's presidential election? fashion week is in full swing in new york city with clothing designers showing off their spring collections. while women's fashions get the headlines, there's another sector of the apparel industry that's starting to get more attention. ruben ramirez reports. >> reporter: george roberts is one of a growing group of men around the country who care more
than ever before about what they wear. >> i was always sort of a bit more dressed up than the people i was around and that was true even in college and even before that. >> reporter: for george who works in real estate, chris who works in advertising and christian who works in e- commerce, following fashion is nothing new. >> i used to read g.q. growing up and that's something that i always wanted to aspire to. >> i follow lots of sites, lots of blogs. >> reporter: the internet has made men's fashion more accessible. fashables.com caters to men and women, it's a blog created by "normalish" people. >> what i try to do is highlight stuff for the average person. what are you going to wear to work. what are you actually going to wear on the weekend. >> reporter: so, where are "normalish" men shopping these days? >> i do like department stores. i like the different selection they have. i like to try new brands. i feel like i can discover new brands better than if i just go
to select stores. >> for basic things, it's j.crew and brooks brothers. >> i think i go with mass market. h&m, uniqlo, zara. i'm a big fan of zara. >> reporter: across the board, the numbers show men are shopping. according to n.p.d. group's consumer tracking service, in 2011, sales of menswear climbed 4% to $55 billion. the womens industry is twice the size but it grew slower last year. >> since the recession, menswear has been the fastest growing sector of the adult apparel market. >> reporter: both men's wearhouse and joseph a-bank clothiers saw sales increase in the spring, reporting stronger than expected second quarter earnings. jack cassidy has worked with some of the biggest brands in the apparel industry. >> there's no question with the economy being as tight as it is, men want to figure out what i call their brand differentiator? is, and a brand differentiator is the way that you dress.
>> reporter: cassidy says suit sales are hot right now. michael andrews, owner of michael andrews bespoke says more men are splurging on custom-made suits. >> once we kind of came out of the downturn, was a return to fun, so, it wasn't just suits because they had to have them, it was also suits because they kind of wanted to. people are confident, but they're not exuberant. we're doing well. i think everybody in our business is doing well. >> reporter: online, on the catwalk, or zooming by on the street, men are finding inspiration everywhere and that's translating into big bucks for the apparel industry. ruben ramirez, "n.b.r.," new york. >> tom: that's "nightly business report" for monday, september 10. good night everyone. we'll see you online at: www.nbr.com and back here tomorrow night.